On October 2, 2015, Moscow hosted the Third International Economic Jewelry Forum held under the slogan "New Realities, New Challenges, New Strategy in a Changing Global Marketplace". The gathering discussed the problems facing the jewelry industry, new economic challenges and opportunities of doing jewelry business, as well as the way out of the current crisis and how to ensure dynamic stability of the jewelry industry in the prevailing economic realities.
The event was organized with the support of Russia’s Ministry of Finance, Gokhran, Assay Chamber, ALROSA, Russian Jewellery Trade Club and RESTEC JUNWEX media holding.
Eduard Utkin, General Manager of the Russian Jewelers Guild shared his view of the results achieved at the Forum in his interview to Rough & Polished.
In what was this Third International Economic Jewelry Forum differed from previous ones?
Previous forums were mostly focused on issues related to jewelry art, design and branding, but then we lived in relatively good times. Right now the situation on the market is recessionary and therefore the chosen theme was corresponding: "New Realities, New Challenges, New Strategy in a Changing Global Marketplace". So, the matters considered during this event more tended to deal with economics. The current business conditions are by no means favorable. In the words of satirist Zhvanetsky, though light at the end of the tunnel is visible, but the tunnel would not end. The purpose of this forum was to offer a real opportunity to establish a dialogue with the authorities. And if before we saw just mere attempts to find understanding and take some acceptable decisions, without much hope to achieve this, now the situation has become particularly severe and it has turned into necessity.
The forum saw pro-active attendance on the part of government agencies monitoring and supervising the jewelry industry, those who influence tax and legal aspects of this business. How do you assess the reports they delivered at the event?
I think, the authorities came to understand at last that the problems facing the industry are not at all trifling matters, and if nothing is done today, if they will not move to meet our needs, the jewelry industry can easily be ruined and it will be difficult to revive it afterwards. This is perceived by the Ministry of Finance, Assay Chamber and Revenue Service.
What were the most striking reports in your opinion?
Alexey Moiseev, Deputy Minister of Finance made a presentation, which attracted attention due to the fact that it was the first time when we heard the desire to help us in sorting out our problems, not just off-hand arguments that this was impossible, that this had never been done before and that we ask too much – there was nothing of the kind this time in the report of our supervisor from the Ministry of Finance. We heard that the Ministry of Finance was concerned about our difficulties, that it was ready to help and that our proposals were being earnestly reviewed. Mr. Moiseev started to oversee our industry recently, but he is already aware of all our problems.
I liked the speech delivered by Maxim Shkadov, CEO of Kristall who voiced a program how to overcome the downturn and pointed out what kind of help can be rendered by the state to the jewelry industry. The main thing is to solve the issue pertaining to the zero rate of VAT on purchases of precious metals. Then we have to abolish customs duties on precious stones. Any state protects its producers by way of tariff regulation. Right now, there is virtually no production of polished goods in Russia, while to export products at affordable competitive prices it is necessary to receive precious stones at world prices. For this purpose, it is necessary to cancel this customs duty, which now stands at 15%. And finally there is a problem of circulating precious stones and precious metals in the domestic market, as well as the problem related to the operation of market networks. There are goods that fall under the special control measures carried out by the Federal Financial Monitoring Service against illegally acquired income. We believe that the jewelry industry cannot serve these purposes and offer to exclude jewelry goods from the scope of this federal law (leaving there only precious metals and stones, which can serve to acquire illegal incomes). And we have seen at this forum that the government is ready to discuss these issues with us.
Today, our country has established an excessive amount of requirements to domestic producers and sellers. For example, there is a rule that to buy jewelry you should first show your passport. Have you ever seen somewhere a thing like that? We ourselves have invented this and we ourselves are routinely flouting this rule.
There is a saying that stupidity of our laws is offset by our failure to comply.
I wish that the laws were more reasonable. The authorities are discrediting themselves by taking such inadequate measures. For example, the practice undertaken by the Federal Financial Monitoring Service to regulate the circulation of precious metals appears to be an excessive administrative barrier. We believe this to be the main redundant barrier. Jewelry may be excluded from this list. We believe that customs duties on precious stones putting our producers in competitive disadvantage are excessive barriers as well. If some time ago we used to sell our goods in the domestic market and everybody was happy, now the domestic market is shrinking and we look to foreign markets and we want to ship our goods there. For example, if we buy stones in Thailand and bring them here, we have to pay a 15-percent import duty; and if after that we want to sell our jewelry goods in China, we shall have to pay their import duty at about 25%. The main component of a jewelry product is a precious stone, and it turns out that our stone is much more expensive compared with other international manufacturers. And finally, the third point is the VAT, as I have already mentioned.
What was the reaction to your presentation from the participants of the forum, including government authorities?
As far as I can tell, they agree that the duty on precious stones should be canceled. As for the zero rate of VAT, this issue is being debated: some believe that this cancellation will help jewelers to create ways of tax evasion, while others believe that such ways will be eliminated, because it will be clear who will be the collector of VAT, as today it is not clear how much honest is the contractor supplying precious metals. A jewelry making company, with all the machines and equipment it has, will not disappear, while the supplier of precious metals may be a shell company. The Internal Revenue Service requires that we thoroughly check all our counterparties, but sometimes this is difficult to implement. As for the Federal Financial Monitoring Service, their most likely response will be negative, because it is believed here that the more control the better.
How do you assess the participation of ALROSA in this forum and the report made by its new president?
We appreciate the participation of ALROSA in the forum and are very pleased that such a person as Mr. Zharkov - professional, competent and flexible – took the company’s helm in such a difficult period for all. His presentation produced only positive emotions. We believe that with his arrival we will be able to interact with ALROSA on a common footing, as we are all doing the same business. We have long viewed the theme of diamonds as something special, believing that it is impossible to apply the rules in force in other markets to diamonds. I do not agree with this. The problem is that more and more synthetic diamonds are coming into the market and they are used to manufacture polished stones, which are called diamonds. And this surge wave of synthetics undermines the core business of ALROSA. I think Mr. Zharkov is well aware of these risks and ready to take them into account in his work. You see, the production of synthetic stones is 4-5 times cheaper than the production of natural diamonds, and this may result in a situation when ALROSA will be edged out of the market. And consumers are vulnerable for they believe that they are buying diamonds, but in fact they get synthetics.
How important is the agreement on strategic partnership between the Russian Jewelers Guild, Russian Jewellery Trade Club and RESTEC JUNWEX media holding?
In hard times, Russia has always stood out in difficult situations only through the consolidation of all forces of society - let us remember the invasions of Poles, Germans and so on. Consolidation of all industry associations is the only way for our jewelry community to keep the situation under control. The community has been fragmented for a long time. Everyone wanted to live after the manner of their own monastery, thinking that they would be able to solve their own problems unaided. So, the signing of the above agreement on strategic partnership is essential. There was also another important event: the Russian Jewelers Guild was joined by a large association, the Jewelers Guild of the Urals. And now we are ready to work together to achieve common goals. Consolidation is there, and the number of members of our guild is growing every day.
What other significant aspects in the Forum’s workings would you like to mention?
I would especially like to emphasize that the Round Table Discussion organized within the Forum was efficient and a great success. During the same week, we had a Charity Ball, which was also a very interesting event. The funds raised during the Ball were used to establish scholarships for the best students of jewelry colleges. The program for vocational education is one of the oldest and most profound problems in our field. We are very happy that today the young come to work in the industry – I mean to work with their hands. And the fact that the Forum was attended by representatives from colleges and by students makes us happy and proves that our younger generation has good vision and far-reaching plans.
Galina Semyonova for Rough&Polished
